Canada manufacturing PMI hits 6-month low in September

Published 10:41 PM ET Sat, 10 Nov 2012

* Weakest reading since March

* PMI falls to 52.37 in Sept from 53.04 in Aug

* New orders, employment, output all slow

By Claire Sibonney

TORONTO, Oct 1 (Reuters) - The pace of growth in Canadian manufacturing fell for a third straight month in September, hitting a six-month low, in the latest sign Canada is suffering from the slowing economic momentum seen worldwide, according to data released on Monday.

The RBC Canadian Manufacturing Purchasing Managers' Index was 52.37 last month, compared with 53.04 in August. This was the weakest reading since March.

The quarterly average PMI reading fell to 52.8 in the three months to September from 54.3 in the three months to June.

"All things considered, particularly within the context of the relatively weak global economic and manufacturing data, the fact that Canada's manufacturing sector continues to expand is noteworthy," Craig Wright, chief economist at Royal Bank of Canada, said in a statement.

Recent global surveys showed U.S. manufacturing suffered its weakest quarter in three years and conditions at European businesses worsened, while China's economy continued to lose steam.

On the upside for Canada, the RBC PMI showed an increase in new orders in September, partly reflecting greater client demand. But the rate of growth was also the weakest in six months.

Meanwhile, job creation eased to a five-month low and output growth was the second weakest in the survey's two-year history.

To make things more difficult for manufacturers, inflationary pressures picked up in September, with input prices rising sharply since August.

Cheryl Paradowski, chief executive at the Purchasing Management Association of Canada, which helps source the data, noted that production problems at some companies were partly to blame for the weak report.

"However, weaker growth trends for new orders and employment, and in particular new export work, also contributed and suggest that Canada continued to be hit by ongoing weakness in the global economy," she said.

The report reflects concerns from Canadian policymakers about Europe's seemingly unending debt crisis, as well as the potential for the U.S. economy to contract at the start of next year.

GROWTH STILL TEPID

Canada's economy has expanded at a steady but tepid pace in recent quarters. Data out Friday showed it grew by a higher-than-forecast 0.2 percent in July from June.

Gross domestic product has to exceed an annualized 2.0 percent for excess capacity to be absorbed, according to calculations by the Bank of Canada, which has forecast third-quarter growth would rise to 2.0 percent from 1.8 percent in the second.

Wright said continued business spending and an improvement in labor market conditions will help set the stage for RBC's prediction of economic growth of 2.1 percent in 2012.

Canada fared better than most of its rich peers in the industrialized world in the aftermath of the 2007-09 global financial crisis, prompting the Bank of Canada in 2010 to become the first central bank in the Group of Seven to tighten monetary policy after the recession.

The Bank of Canada is still the only G7 central bank to have a tightening bias, though it's maintained its key overnight rate at 1 percent for the last two years.